June 2012 Energy Index - Bord Gáis Energy

Bord Gáis Energy IndexJUNE 2012

12 Month Rolling Average

31 October 2009 87.80

30 November 2009 87.15

31 December 2009 88.29

31 January 2010 88.92

28 February 2010 90.20

31 March 2010 92.51

30 April 2010 95.31

31 May 2010 97.49

30 June 2010 99.22

31 July 2010 101.09

31 August 2010 102.82

30 September 2010 104.97

31 October 2010 106.66

30 November 2010 108.89

31 December 2010 111.88

31 January 2011 114.76

28 February 2011 117.91

31 March 2011 121.41

30 April 2011 124.45

31 May 2011 126.97

30 June 2011 128.88

31 July 2011 131.18

31 August 2011 133.64

30 September 2011 135.59

31 October 2011 137.54

31 November 2011 139.53

31 December 2011 140.15

31 January 2012 141.01

31 February 2012 142.38


INDEX FALLS 1% ON A YEAR ON YEAR BASIS WITH ONGOING OIL PRICE VOLATILITY

OILThe price of a barrel of oil fell 6% in euro terms in June and recorded its third month of consecutive decline as the Brent crude oil price continues to recede from its high of $128 in March. Back in March, geo-political tensions dominated the markets and oil prices escalated. From April onward, a series of negotiations between the West and Iran over its disputed nuclear programme helped to appease the markets.

The potential negative economic fallout from the ongoing European sovereign debt issue created a bout of risk aversion which rattled the oil markets in June and drove prices to an 18 month low at one point. Given that China has a greater impact on global oil demand growth than a slowdown in Europe, the slowing Chinese economy, as evidenced in its declining industrial production, retail sales and manufacturing numbers, continued to weigh on prices in June.

Despite recent price falls due to a bout of market risk aversion, the average price of a barrel of Brent crude oil in 2012 is currently over $113, $2 higher than the record set in 2011, and prices remain “very high in historical terms” according to the International Energy Agency.

OVERALL SUMMARY:The Bord Gáis Energy Index remains relatively unchanged over the last 12 months but fell 7% in June. The major factor influencing the decline in the Index is the fall in the price of Brent crude oil which continues to recede from the record highs seen in March, although the price of oil has rebounded somewhat in the last week.

1 Mth -7% 3 Mth -13% 12 Mth -1%

1 Mth -6% 3 Mth -16% 12 Mth 0%

60

100

140

180

Poin

ts

Apr-12Jan-12Oct-11Jul-11Apr-11Jan-11Oct-10Jul-10Apr-10Jan-10Oct-09Jul-09Apr-09Jan-09

Bord Gáis Energy Index 12 Month Rolling Average

60

100

140

180

Poin

ts


Bord Gáis Energy Index (Dec 31st 2009 = 100)

Because of the ongoing European sovereign debt crisis over the last 12 months, the euro has fallen 13% versus the US Dollar and 11% versus the British Pound. So despite falls in oil, coal and Day-ahead UK gas prices over a 12 month period in US Dollar and British Pound terms, commodity price falls in euro terms have not fully materialised for euro zone buyers.

Volatility in the price of oil continued in June and it became evident again that oil’s ability to trade on its own fundamentals has been overshadowed by the ongoing European financial crisis. However, given the possibility that Europe can now move to find a solution to the crisis by ‘Europeanising’ national debt, oil market fundamentals such as the sanctions on Iran and the potential loss of 1 million barrels of oil, and a myriad of other uncertainties, may once again take centre stage in the months to come.

Oil Index

*Index adjusted for currency movements.Data Source: ICE

Natural Gas Graph

Data

31 January 2009 195.04

28 February 2009 156.23

31 March 2009 99.24

30 April 2009 92.78

31 May 2009 87.00

30 June 2009 87.56

31 July 2009 76.34

31 August 2009 69.43

30 September 2009 61.72

31 October 2009 77.55

30 November 2009 83.21

31 December 2009 100.00

31 January 2010 125.88

28 February 2010 114.44

31 March 2010 101.67

30 April 2010 106.04

31 May 2010 130.73

30 June 2010 145.29

31 July 2010 157.48

31 August 2010 145.96

30 September 2010 132.67

31 October 2010 148.57

30 November 2010 167.11

31 December 2010 204.87

31 January 2011 188.31

28 February 2011 179.74

31 March 2011 194.03

30 April 2011 181.39

31 May 2011 184.99

30 June 2011 183.36

31 July 2011 179.36

31 August 2011 172.82

30 September 2011 180.07

31 October 2011 180.16

31 November 2011 191.53

31 December 2011 189.94

31 January 2012 184.35

31 February 2012 221.68


ELECTRICITYIrish wholesale electricity prices were 8% lower in June compared to May. As the majority of power produced on the island of Ireland is generated by burning gas, a 5% fall in the average monthly wholesale Day-ahead UK gas price in euro terms put downward pressure on the cost to produce electricity in June.

Furthermore, a carbon revenue levy (imposed on generators by the Commission for Energy Regulation and disbursed in line with Government policy) that was included in the price of wholesale electricity, and was estimated to have increased the price by between 3% and 6%, has now been removed by the Government.

Furthermore, a gradual erosion in power demand with greater daylight and a reduced need for home heating meant that the electricity system needed fewer generators to produce electricity and this added further pressure on Irish wholesale electricity prices.

NATURAL GASOver the course of the month, the UK Day-ahead gas price was relatively stable and traded in a very tight range between 54 - 57p per therm. In euro terms, the average monthly Day-ahead UK gas price in June was 5% lower than its May equivalent.

A fall in the monthly average Day-ahead price was recorded despite a number of unplanned outages and a strike by 700 platform workers in the North Sea over pension contributions. According to Platts, the strike action reduced Norway’s oil production by 15% and its gas output by 7% following the closure of 6 fields. Norway is the world’s eighth largest oil exporter, and Norwegian gas exports cover close to 20% of European gas consumption with most exports going to Germany, the UK, Belgium and France. However, because of reduced gas demand during the summer season, markets failed to react in June.

Over the month, in euro terms, the forward winter and summer gas contracts were little changed, despite falling oil prices. In euro terms, these forward seasonal contracts closed the month higher than where they were at the start of the year.

1 Mth -5% 3 Mth -2% 12 Mth 6%

1 Mth -4% 3 Mth -8% 12 Mth -19%

1 Mth -8% 3 Mth -9% 12 Mth -3%

Poin

ts

50

100

150

200

250


Poin

ts

40

95

150

205

260


60

100

140

180

Poin

ts


Natural Gas Index

Coal Index

Electricity Index

*Index adjusted for currency movements.Data Source: Spectron Group

*Index adjusted for currency movements.Data Source: ICE

Data Source: SEMO

COALEuropean coal prices continued to decline in June, having now fallen nearly 20% in euro terms over the last 12 months.

Following the explosion of shale drilling in the US, US utilities are now burning more gas and are relying less on coal to produce electricity. This decline is pushing US producers to increasingly look to Europe as an export market. This surplus continues to push European coal prices lower, and as a consequence, Europe is now burning relatively cheap coal to produce electricity at the fastest pace since 2006.

Global coal prices remain depressed as Chinese demand for coal, the fuel for three-quarters of the nation’s power plants, has faltered as the economic slowdown slows electricity demand. Healthy hydro generation also weighed on prices. As a consequence, China’s coal stockpiles have risen to the highest level since the global financial crisis of 2008. A weakening oil price is also weighing on European coal prices.

EUR/USD

31 January 2009 1.283

28 February 2009 1.272

31 March 2009 1.323

30 April 2009 1.321

31 May 2009 1.412

30 June 2009 1.405

31 July 2009 1.424

31 August 2009 1.434

30 September 2009 1.464

31 October 2009 1.474

30 November 2009 1.498

31 December 2009 1.433

31 January 2010 1.389

28 February 2010 1.360

31 March 2010 1.353

30 April 2010 1.327

31 May 2010 1.230

30 June 2010 1.226

31 July 2010 1.305

31 August 2010 1.269

30 September 2010 1.362

31 October 2010 1.392

30 November 2010 1.304

31 December 2010 1.337

31 January 2011 1.370

28 February 2011 1.379

31 March 2011 1.419

30 April 2011 1.483

31 May 2011 1.437

30 June 2011 1.451

31 July 2011 1.438

31 August 2011 1.441

30 September 2011 1.345

31 October 2011 1.395

31 November 2011 1.3446

31 December 2011 1.2961

31 January 2012 1.3084

31 January 2012 1.3325

EUR/GBP

31 January 2009 0.887

28 February 2009 0.886

31 March 2009 0.925

30 April 2009 0.894

31 May 2009 0.874

30 June 2009 0.853

31 July 2009 0.853

31 August 2009 0.881

30 September 2009 0.914

31 October 2009 0.896

30 November 2009 0.913

31 December 2009 0.888

31 January 2010 0.867

28 February 2010 0.893

31 March 2010 0.891

30 April 2010 0.868

31 May 2010 0.846

30 June 2010 0.819

31 July 2010 0.831

31 August 2010 0.827

30 September 2010 0.866

31 October 2010 0.869

30 November 2010 0.837

31 December 2010 0.857

31 January 2011 0.854

28 February 2011 0.849

31 March 2011 0.883

30 April 2011 0.888

31 May 2011 0.874

30 June 2011 0.903

31 July 2011 0.875

31 August 2011 0.885

30 September 2011 0.860

31 October 2011 0.8615

31 November 2011 0.8562

31 December 2011 0.8334

31 January 2012 0.8302

31 February 2012 0.8372


FX RATESHaving weakened over the last 3 months, the euro recorded a 2% gain versus the US Dollar in June. The euro stabilised versus the British Pound in June but has lost 11% in value over a 12 month period due to the European sovereign debt crisis.

The euro’s strength in the month can be attributed to euro zone leaders agreeing to instruct the euro zone finance ministers to implement a new plan that would involve the possibility of ‘Europeanising’ national debt for the first time. The market responded positively to this new departure which aims to ‘break the vicious circle between banks and sovereigns’ which has plagued European growth and fuelled economic uncertainty. The growing prospect that the ECB would cut its benchmark interest rate in July to an all time low also supported sentiment toward the region and its currency in June.

The US Dollar’s weakness can be attributed to growing concern about the $650billion fiscal tightening expected in the US in 2013 and the growing likelihood of a third round of quantitative easing by the Federal Reserve Bank.

MARkET OUTLOOk:According to the International Energy Agency, when it comes to oil prices “there is no room for complacency...because you never know what prices are going to do”. This view is supported by the dramatic and sudden oil price rise to $128 in March and recent falls. Looking forward, prices have the potential to fall once again to the lows seen in June given the healthy oil supply picture and slower global growth, particularly in China.

However, the outlook is far from certain given that the Chinese authorities have the means and motivation to stimulate economic growth, Iran’s reaction to the EU’s sanctions after 1st July is unknown and renewed geopolitical tensions once again puts the spotlight on the vulnerable Strait of Hormuz. Spare production capacity remains low by historic standards and any growth in demand in the second half of 2012 could put upward pressure on prices. Traders will also assess OPEC’s collective tolerance of prices below $100.

Seasonal gas prices will continue to be influenced by future movements in oil and potential developments in Japan as it plans to restart nuclear power stations for the first time since last year’s Fukushima disaster. According to Bloomberg there is now “speculation that prices for liquefied natural gas have peaked after reaching a three year high” as Japanese demand could be eroded over time. However, in the short term, the strike by 700 platform workers in the North Sea has the potential to drive prices if the dispute escalates.

For more information please contact: Fleishman-Hillard — Aidan McLaughlin — 085 749 0484 Bord Gáis Energy — Christine Heffernan — 087 050 5555

RE-WEIGHTING OF BORD GáIS ENERGY INDEX:Following the SEAI’s 2009 review of energy consumption in Ireland, released in Q4 2010, there was a 9.3% drop in overall energy consumption. The most notable drop of 1.39% was in oil consumption in the form of gasoline and diesel. This reflects the economic downturn experienced at the time. The share of natural gas and electricity increased by 0.63% and 0.57% respectively. An increase in the use of renewables and peat, at the expense of coal in electricity generation was also observed. As a result the Bord Gáis Energy Index has been reweighted to reflect the latest consumption data. This has had a minimal effect on the overall shape of the Index, but may indicate future trends.

Disclaimer:The contents of this report are provided solely as an information guide. The report is presented to you “as is” and may or may not be correct, current, accurate or complete. While every effort is made in preparing material for publication no responsibility is accepted by or on behalf of Bord Gáis Eireann, the SEMO, ICE Futures Europe, the Sustainable Energy Authority of Ireland or Spectron Group Limited (together, the “Parties”) for any errors, omissions or misleading statements within this report. No representation or warranty, express or implied, is made or liability accepted by any of the Parties or any of their respective directors, employees or agents in relation to the accuracy or completeness of the information contained in this report. Each of the Parties and their respective directors, employees or agents does not and will not accept any liability in relation to the information contained in this report. Bord Gáis Eireann reserves the right at any time to revise, amend, alter or delete the information provided in this report.

1 Mth 2% 3 Mth -5% 12 Mth -13% EURUSD

1 Mth 0% 3 Mth -3% 12 Mth -11% EURGBP

0.60

0.80

1.00

1.20

1.40

1.60


FX Rates

Electricity 18.40%

Coal3.16%

Gas 13.52%

Oil 64.93%

June 2012 Energy Index - Bord Gáis Energy

Business

Transcript of June 2012 Energy Index - Bord Gáis Energy